Buy Divyashakti Granites - CMP Rs 82, Target Rs 200.
Divyashakti Granites is an interesting play for Quartz demand in the US. The company exports granites to US and has a small scale of operations. It's a net cash company with a good amount of cash on books compared to market cap. The current business is doing well. Management is very conservative too. They hold a good chunk of the company too.
- What attracted me to this company is they recently invested heavily in Quartz.
- In September quarter they have added Rs 25 Cr in fixed assets.
- Engineered stone/Quartz is a high returns business and is growing very fast in the US.
- Comparable company is Pokarna and taking that as base we can see Rs 25 Cr adding to top line once peak utilisation is achieved.
- Gross margins are at 40-50%. That gives us 10-12 Cr gross profit. Less depreciation at 10% is 8-10 Cr. At 33% tax rate, we can see an addition of Rs 7Cr approx, which is considerable given current bottom line.
I expect the stock price to double and settle at Rs 200 once the plant kicks in.
Disclosure: Invested at Rs 88.